Fixed Asset – What Is It and How Should Businesses Manage It?

Fixed assets are critical for businesses in the UAE, representing long-term investments used in operations rather than for immediate sale. Proper management of fixed assets ensures compliance with UAE financial regulations and facilitates accurate financial reporting.

What Are Fixed Assets?

Fixed assets are tangible or intangible resources owned by a business that provide long-term value and support operations. These assets are typically held for more than one accounting period and are subject to depreciation or amortization. Common examples include:

• Tangible Assets: Buildings, machinery, vehicles, and furniture.

• Intangible Assets: Patents, trademarks, software, and goodwill.

Value Threshold for Fixed Assets in the UAE

While the specific value threshold for classifying an item as a fixed asset depends on a company’s internal policies, businesses generally set a minimum value (e.g., AED 5,000 or AED 10,000) below which items are classified as expenses instead of fixed assets. This threshold ensures the appropriate allocation of costs and compliance with financial standards.

Key Features of Fixed Assets

1. Long-Term Use: Assets are used for operations over multiple accounting periods.

2. Depreciable: Most fixed assets, except land, lose value over time and require depreciation.

3. Non-Liquid: Fixed assets are not intended for immediate conversion to cash.

Accounting for Fixed Assets in the UAE

1. Initial Recognition: Fixed assets should be recorded at their purchase cost, including additional expenses like installation or shipping.

2. Depreciation:

   • Aligns with International Financial Reporting Standards (IFRS), widely adopted in the UAE.

   • Methods include straight-line or reducing balance depreciation.

3. Revaluation: Periodic revaluation may be necessary to ensure assets are recorded at fair value.

4. Disposal: Gains or losses from the sale or retirement of assets must be reported in financial statements.

Tax Implications for Fixed Assets

For VAT-registered businesses in the UAE:

1. Input VAT: VAT paid on fixed asset purchases can be claimed as input VAT if the assets are used for taxable supplies.

2. Adjustments: Businesses must adjust VAT recovery if assets are used for both taxable and exempt supplies.

3. Asset Disposal: VAT applies to the sale of fixed assets unless exempt under specific conditions.

Managing Fixed Assets

1. Asset Register: Maintain a detailed record of all fixed assets, including purchase dates, costs, depreciation schedules, and disposal records.

2. Value Threshold: Establish and document a clear threshold for classifying items as fixed assets to ensure consistent reporting.

3. Regular Audits: Conduct periodic audits to verify asset records and valuations.

4. Compliance with UAE Laws: Ensure adherence to financial and tax reporting requirements to avoid penalties.

Benefits of Proper Fixed Asset Management

1. Financial Accuracy: Improves the accuracy of financial statements.

2. Tax Efficiency: Maximizes VAT recovery and ensures compliance with FTA regulations.

3. Operational Efficiency: Helps in tracking asset usage and planning future investments.